Paper: 'Organic Finance': The Ingredients and Incentives in Our Investment Products

The increasing complexity and de-localization of finance has allowed for an obfuscation of fees and costs that asset managers, implicitly or explicitly, charge to asset owners. This obfuscation has, in turn, led to a distortion in the underlying incentives that asset owners set for our entire capitalist system. In this chapter, we argue that this distortion is driving an increasingly short-term and disconnected financial world. We also argue that a more professional and engaged community of asset owners that can truly understand the ingredients and incentives in financial products is needed. In making our case, we draw parallels to the food industry, which has also seen a revolt against the mass-produced food products. As people began to understand the ingredients in their food, and the consequences for their own health, they began to consume food products differently – often preferring organic foods. As investors begin to understand the fees and costs in their investment products, and the consequences for their and the world’s health, they are beginning to invest differently – preferring efficient and transparent products rooted in real assets in the real economy. This is a phenomenon we’ve taken to calling ‘organic finance’, and it serves as the key conceptual contribution of this chapter.
Number of Pages in PDF File: 19
Keywords: Institutional Investment, Economic Geography, Finance, Asset management, fees, costs, expenses